Having your home appraised is an important step in the process of selling your property. A seller who lists a home at an inappropriate asking price is likely to have a hard time attracting buyers. This is especially true in the current real estate market, which is still recovering from the recession and features a low inventory of properties at present. When a home is appraised, a qualified appraiser determines the monetary value of the property by examining the property’s features and location.
Two Main Approaches:
When an appraiser uses the sales comparison approach to determine the value of a home, he or she compares the home to other properties in the area that have sold recently. These properties that are used for the purpose of comparison- known as “comparables” or “comps”- indicates to the appraisal the going price for homes with similar components located in the same area. The sales comparison approach method is strongly influenced by the general real estate market in an area.
Using the cost approach, the appraiser will determine the value of the home in question by calculating how much it would cost to reproduce that home. The appraiser determines how much it would cost to place the home if it were destroyed, and the area’s land value and any applicable depreciation are also factored into the equation.
Myths About Appraisals
- Appraisals are for the buyer: In fact, home appraisals can work to benefit not only the buyer, but the seller and the lender as well. Appraisals are especially of interest to the lender in a property sale because the lender needs to avoid expending more money to purchase the home than the home is worth.
- A low appraisal will prevent the buyer from buying at a certain price: A transaction on a home sale can still proceed even in the case of a “low” appraisal. This is possible if the seller lowers the listing price and the buyer puts funds towards repairs on the home that will raise its value in the future.
- Appraisers use a fixed formula: There are many different variables that go into an appraisal on a property, and it is often difficult to use the same exact process or formula for each property an appraiser inspects.
How to Handle a Low Appraisal
A seller can deal with a low appraisal by either getting another opinion or by addressing issues on the property that are decreasing its value in the eyes of the appraiser. Once repairs or improvements are made on a home, its appraisal value could definitely increase.
The home appraisal is only one small step in the process of selling a home. You will not necessarily be able to locate a buyer who is willing to offer you the appraisal price right away. After your home is appraised, you will have a figure to work with regarding its value that both potential buyers and lenders can trust as accurate and fair.